Twenty years ago,
Kerry Packer
made a memorable comeback to the television business. Having wrested Nine Network back from a bankrupt
Alan Bond
for a fraction of what he sold it for three years earlier, Packer senior strode into Nine’s Willoughby headquarters in Sydney to personally oversee the first round of cost-cutting – starting with the booze. A mailroom boy and two security guards were famously dispatched to clear out the fridges.

This week, it was
James Packer
’s turn to stun the media industry with a dramatic return to the free-to-air television market via a $280 million share raid on
Ten Network Holdings
, which netted him an 18 per cent stake, making him the largest shareholder.

Unlike his father, Packer has no plans to own the television company outright and is unlikely to literally march through Ten’s newsroom looking for ways to save money.

But his strategy for the company is remarkably similar: take control – although Packer will stop at 19.9 per cent to avoid being forced to make a full takeover bid – and cut costs.

Packer has stepped back into free-to-air TV when it is enjoying stronger advertising revenue growth, in part, because of the digital channels the networks have rolled out over the past two 18 months. At the same time, free-to-air TV executives are convinced that rather than killing their medium, internet TV will give them new distribution channels for the content they produce.

“James was startled by the power of the recovery in free-to-air television [since the 2009 slump in the TV ad market] and the success of the multi-channels," one source close to the Packer camp said.

While the return of Packer to the free-to-air TV world is a vote of confidence in the industry, it is important to put the deal in context.

Packer has so far spent $280 million to buy part of Ten. That compares to the $2.7 billion he has invested in his Crown casino business and the $975 million he has tied up in Consolidated Media. The Ten investment is also just a fraction of the $1.5 billion-plus CVC handed him for Nine, ACP and other media bits and pieces.

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After effectively turning his back on free-to-air television four years ago when he started exiting Nine, Packer’s move surprised many in the industry.

After his father died on Boxing Day 2005, Packer made it clear he was sceptical about the future of free-to-air TV in a digital world. He directed the bulk of his vast fortune towards his gaming businesses and focused his media strategy on pay TV, flicking Nine and associated companies such as ACP Magazines to private equity firm CVC Asia Pacific at the top of the market. It was the deal that defined the old media versus new media debate being run in boardrooms across the country.

Now Packer is back in the mainstream media world, prompting some media types to speculate he will not stop at a stake in Ten. “Is there more to come?" asks one senior media executive. “There could be; it’s always been hard to predict what James will do, in any industry."

Packer must first survive scrutiny from the competition regulator which confirmed on Friday it was looking at the investment. Packer did not flag his move on Ten to executives at his pay TV investment business
Consolidated Media Holdings
or
Bruce Gordon
, who owns 13 per cent of Ten and has known the Packer family for years.

Gordon’s son Andrew, who runs the family’s WIN Corp media group, says Packer’s investment in Ten is “an interesting move . . . and a surprising one, he appears to have renewed interest in free-to-air TV".

Like any good deal, Packer’s move on Ten stemmed from a chat with his mates. His best friend is Nine’s chief executive,
David Gyngell
, and Packer is said to have formed a close relationship with
Seven Group
Holdings executive chairman and Australia’s reigning media mogul,
Kerry Stokes
.

“He speaks to Stokes and Gyngell a lot, and it became very clear that Seven and Nine were printing money. Ten was clearly an underperforming network."

Packer was not always on such friendly terms with Stokes. Apart from running rival networks, they were also on opposite sides of a long-running pay TV legal stoush. In an interview with The Australian Financial Review in November 2006, Packer’s comments on Stokes were reported as “unprintable".

Packer was said to be livid when Stokes launched a sharemarket raid last year on Consolidated Media, which has stakes in pay TV companies Foxtel and Premier Media Group.

But after some initial chest beating and stake building, the pair agreed to work together and have become close

Two weeks ago, Packer decided to get serious about the move on Ten and he called on his team of close advisers to do the numbers.

Bolstered by the 50 per cent underperformance of Ten’s share price over the past five years relative to the broader market and views from the company’s big shareholders, including Perpetual and Paradice Investment Management, that its problems could be fixed by a change in strategy, Packer launched the raid on Tuesday, two days before Ten was due to report its 2009-10 results.

He fled the inevitable publicity to attend a board meeting of Crown Melco Entertainment in Macau.

Packer returned to Sydney on Friday and meetings with the Ten board are expected to start early next week. There is no question Packer wants to exert “significant influence" over the board, according to a source close to the deal.

Packer’s investment strategy is similar to that used by Stokes when he bought a significant shareholding in
West Australian Newspapers
in October 2006. Stokes built the stake and then agitated for board seats, new management and a strategy overhaul. After some initial resistance from the board, Stokes secured control of WA Newspapers without paying a premium for control or launching a full bid.

Packer is hoping to perform the same trick at Ten. He may be helped by Ten’s other major shareholder, the Bermuda-based Australian billionaire
Bruce Gordon
, who has lost money on his 13 per cent stake and so far been denied a board seat (Ten claims he has never asked for one). Big institutional investors such as Perpetual and Paradice also back Packer’s plans.

“Ten is under-earning relative to its peers," Perpetual head of equities John Sevior said during the week. “The other networks are having a pretty good time of it. There needs to be some changes."

Some analysts believe the move could be part of a strategy to protect Packer’s 50 per cent interest in Premier Media Group, the producer of the Fox Sports pay TV channels, which directly compete with Ten’s all-sports digital channel, One. There are two scenarios here: Packer ditches Ten’s sports channel in favour of cheaper programming; or Ten and Fox Sports pool resources and bid for increasingly expensive television rights. The Australian Football League and National Rugby League TV rights are up for grabs over the next year.

Media companies are also waiting on the Gillard government’s changes to the sport anti-siphoning list (which dictates what sporting events the free-to-air and pay TV sectors can show).

Sources close to Packer dismiss the idea his investment in Ten is linked to possible changes to the anti-siphoning list. They also say talk he wants to run the Sky News pay TV channel on one of Ten’s digital channels is “rubbish".

“There is lots of speculation about the strategy behind this move on Ten," says one source.

“But while everyone is searching for the conspiracy, I can tell you what this is about. It’s about making money."

Packer’s team has already done a lot of work on the change of strategy for Ten, which will put the media mogul at loggerheads with Ten’s executive chairman
Nick Falloon
and TV chief executive
Grant Blackley
.

Their basic argument is that, five years ago, Ten was the most profitable and best run free-to-air TV business in the country. Since then margins have dropped roughly 40 per cent and it has lost ground to Seven and Nine.

They believe it has wasted money in moving away from its key demographic, the under 40s, and has failed to develop a successful online strategy, which would appeal to its younger audience.

Ten’s plan to spend $20 million a year on two news programs has also been panned by Packer’s camp for adding to the move away from its under-40s audience.

Packer believes Falloon, who worked for the Packers’s media group for 19 years until 2001, is responsible for the botched strategy at Ten and should have taken advice from seasoned TV executives, such as Bruce Gordon. It will make for an interesting meeting early next week.